Weekly Recap (04/04/11-04/09/11)by Tim Manni
April is Financial Literacy Month. Aside from taxes, probably no financial instrument or process is less understood than mortgages and the mortgage market. The truth is, it is a complex market, but by no means beyond the comprehension of most people…even you! In addition to being intimidating, it can also be hard to find an objective, unbiased source of information to help you.
To get you started, here’s a little true, false quiz to test your mortgage knowledge…CLICK HERE to take our mortgage quiz.
I want to examine three separate issues that could possibly kill refinance demand entirely: Underwater homeowners, a requirement in the proposed definition of a qualified residential mortgage (QRM) and mortgage rates.
Underwater borrowers = No refis
Ever since home prices entered into a free fall, this country has been socked with an epidemic of negative home equity. The latest estimates pin nearly one in four borrowers as owing more on their mortgages than their homes are worth. While some of these homeowners are in worse financial straits than others, a common theme among all underwater borrowers has been the inability to refinance. Since a sufficient rise in home prices isn’t likely in the works for some time, one of, if not the only options left for these homeowners to possibly improve their financial situation would be to refinance at current mortgage rates.
Mortgage rates change every day, but as a borrower you have to keep an eye on events down the road. The penalty for not looking ahead could be far-higher costs or even foreclosure and/or bankruptcy.
The obvious problem with looking ahead is that nobody actually has the ability to see into the future. Nevertheless, such a handicap does not prevent economists from telling us what will happen next. All of which brings us to a survey by MacroMarkets LLC and its March 2011 Home Price Expectations Survey.
Only if locking in low mortgage rates was the only thing borrowers had to worry about while en route to purchasing their homes. Reality is, securing low mortgage rates is only one facet of the homebuying process. Borrowers have a lot of other things to worry about these days including stellar credit scores, large down payments, smaller debt-to-income ratios, equity stakes, and more.
That said, the truth is, if you can qualify for mortgage financing, mortgage rates are expected to remain “fantastic” through the spring. The “bad” news: They’re not expected to remain at unprecedented levels (buyers will have to settle for fantastic).
How will you finance or refinance your home the next time you’re in the market for a mortgage? For a lot of borrowers the experience is likely to be very different than in the past. Not only that, it may also be different for a lot of lenders.
The government is now in the process of defining what is and what is not a qualified residential mortgage (QRM). This definition is required under the Dodd-Frank Wall Street Reform Act and apparently is quite complex: The government’s proposal runs 376 pages, little of which can be understood without an advanced degree.
The unbalanced economic recovery continued last week as we saw a decent improvement in the March job numbers, one of the factors responsible for firming up mortgage rates last week:
HSH.com’s overall mortgage tracker — our weekly Fixed-Rate Mortgage Indicator (FRMI) — found that the overall average rate for 30-year fixed-rate mortgages rose by six basis points (.06%) to finish the week at 5.17%. A key component of the first-time homebuyer market, FHA-backed 30-year fixed-rate mortgages increased by five basis points to land at 4.81%. ARMs are starting regain at least some favor in the market, and Hybrid 5/1 ARMs, perhaps the most preferred alternative to the traditional 30-year FRM (notably for jumbo buyers) increased a full tenth-percentage point (.10%), beginning April at an average of 3.84%.